An Empirical Research on the Structure of Public Expenditure and Economic Growth Evidence from China

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1 Iteratioal Joural of Ecoomics ad Fiace; Vol. 8, No. 3; 206 ISSN 96-97X E-ISSN Published by Caadia Ceter of Sciece ad Educatio A Empirical Research o the Structure of Public Expediture ad Ecoomic Growth Evidece from Chia Li Yag Zi Departmet of Urba Plaig, Tsighua Uiversity, Beijig, Chia Correspodece: Li Yag Zi, Departmet of Urba Plaig, Tsighua Uiversity, Beijig, 00084, Chia. liyagzi@mail.tsighua.edu.c Received: Jauary 5, 206 Accepted: Jauary 29, 206 Olie Published: February 25, 206 doi:0.5539/ijef.v83p85 URL: Abstract This paper takes the relatioship betwee public expediture structure ad ecoomic growth as the object of study. By usig evidece from Chia, it aalyzes how the Chiese Govermet should promote ecoomic growth by the optimizatio of public expediture structure whe facig with a declie i the growth of fiscal reveue. The mai coclusios of the paper are as follows: The impact of public expediture structure o ecoomic growth ot oly depeds o the output elasticity of the item of expediture, but also o its iitial share. Whe the iitial share is oversized, it will make a item of expediture which appears to be productive become o-productive. For Chia, the proportios of ecoomic costructio expediture ad admiistrative expediture have a sigificat egative effect o log-term ecoomic growth; the social expediture o culture ad educatio has a sigificat positive effect o log-term ecoomic growth. Keywords: structure of public expediture, ecoomic growth, ecoomic costructio expediture, social expediture o culture ad educatio, defese expediture, admiistrative expediture. Itroductio Sice the ecoomic crisis i 2008, the ecoomic growth of global major ecoomies has geerally slowed dow. The world s ecoomy has etered ito a phase of deep adjustmet. Alog with the ecoomic dowtur, the growth rate of fiscal reveue has ievitably slowed dow. Takig Chia as a example, i 204 the geeral public reveue atiowide icreased by 8.6%, a drop of.6 ad 4.3 percetage poits compared with 203 ad 202 respectively. Ad it was a fall of 6.4 percetage poits whe compared with 25% of 20. Uder the costrait of tight fiscal reveue, the patter which drives ecoomic growth by large-scale fiscal expasio caot be maitaied. Therefore with a certai amout of total public expediture, the key to implemetig curret fiscal policies is to promote the icrease of ecoomic growth efficiecy ad thereby push forward the ecoomic growth by adjustig the ratio of the public expediture structure. Ad to optimize the public expediture structure, i-depth study must be made o the relatioship betwee public expediture structure ad ecoomic growth, so as to estimate, i the curret ecoomic situatio, which items of expediture should be cut ad which should be added. This paper takes the relatioship betwee public expediture structure ad ecoomic growth as the object of study. Sectio II is the related literatures review. I Sectio III a theoretical model of the impact of public expediture structure o ecoomic growth is established. I Sectio IV, empirical test is provided. Based o evidece from Chia, we make aalysis of the dyamic relatioship betwee public expediture structure ad ecoomic growth ad its time trajectory ad test which items of expediture have a positive effect ad which have a egative effect o log-term ecoomic growth. Explaatios of empirical test results are provided i Sectio V. Sectio VI presets coclusios ad policy suggestios. 2. Related Literatures I 970s, Arrow ad Kruz (970) itroduced public expediture ito mathematical model, emphasizig that the represetative idividual ca gai utility from public expediture ad represetative firms ca also beefit from public expediture. Sice the, may scholars (Che, 2006; MacDoald, 2008; Woodford, 20) have studied the relatioship betwee public expediture ad ecoomic growth. Barro(990), as the typical represetative, has built ad improved the theoretical model of the relatioship betwee productive expediture ad the ecoomy, 85

2 based o edogeous growth model. He poited out that the relatioship betwee the proportio of productive expediture ad ecoomic growth rate is a iverted U type, i.e., the productive expediture has a optimal size, whe the share of productive expediture is beyod the optimal size, it will have a egative effect o ecoomic growth, but if the share has ot yet reached the optimal size, the society ca promote ecoomic growth by the icrease of productive expediture. I the empirical research, Barro (99) made aalysis of ecoomic growth theory by utilizig evidece of 960 to 985 from 98 coutries. He divided govermet expediture ito two types: oe is govermet cosumptio ad the other is govermet ivestmet. The research came up with the followig coclusios: Ecoomic growth has a egative correlatio with the proportio of govermet cosumptio i GDP ad its relatioship with govermet ivestmet is o-sigificat. Shatayaa Devaraja,Viaya Swaroop ad Heg-fu Zou (996) aalyzed the relatioship betwee public expediture structure ad ecoomic growth, usig evidece of 20 years from 43 developig coutries. They cocluded that for developig coutries, the proportio of capital expediture i Total expediture has a egative effect o ecoomic growth ad the proportio of curret expediture i Total expediture has a positive effect o ecoomic growth. Sice the, more ad more researches (Blakeau, 2007; Velázquez, 2004; Saz, 20) have focused o the evidece from OECD couties ad developig coutries. For example, usig evidece from 9 developig coutries i Lati America, Ramirez ad Nazmi (997) cocluded that cosumptio expediture has a egative effect o ecoomic growth ad educatioal, medical ad health care expediture have a positive effect o ecoomic growth. Zheg (202), usig the pael data of 997 to 2009 of chia s west area, east area ad middle area, examied the ecoomic growth effect of public expediture structure betwee differet areas, ad others (Gao, 202), usig time series data from 996 to 2006, examied the ecoomic growth effect of public expediture structure. From the above literature review, we ca see that there are may researches o the effect of public expediture structure o ecoomic growth. However, regardig which items of expediture are productive, i.e. those havig a positive effect o log-term ecoomic growth; ad which are cosumptio expediture, i.e. those havig a egative effect o log-term ecoomic growth, the cosesus have ot bee reached yet. Sometimes there are eve opposite coclusios. The reasos for this divergece could be the differeces i research objects (coutries/regios), research data ad research methods. Meawhile, the existig researches have the followig characteristics: Firstly, they are maily based o empirical studies ad lack rigorous theoretical model; secodly, they are maily based o static aalysis to study the log-term effect of public expediture structure o ecoomic growth. I light of that, this paper, first of all, establish a theoretical model to aalyze ad discuss theoretically the relatioship betwee public expediture structure ad ecoomic growth. The we adopt dyamic aalysis method to improve the issue of icosistet research results caused by the lack of aalysis o the dyamic time path of the relatioship betwee public expediture structure ad ecoomic growth. Thirdly, the paper studies situatio i Chia by usig evidece from Chia. 3. Theoretical Model Based o the aalysis framework of Barro (990), this paper itroduces productio fuctio which icludes the variable of public expediture structure. It exteds Shatayaa Devaraja, Viaya Swaroop ad Heg-fu Zuo s (996) model from oe icludig two compoets of productive expediture ad o-productive expediture i aalyzig the relatioship of public expediture structure ad ecoomic growth to a model icludig compoets of public expediture, so as to aalyze the relatioship of public expediture structure ad ecoomic growth. By icreasig the effect of oe item of expediture o ecoomic growth through reducig aother item, the model estimates whether the expediture is productive or o-productive. We assume that there exist three market etities, i.e. eterprise, idividual ad govermet. Eterprises employ the capital ad labor provided by families i a market with perfect competitio ad carry out productio activities. Total output is decided by private capital stock k ad the total iput of items of govermet expediture g i (i= ). Obtai the criterio of estimatig whether g i is productive or o-productive by model derivatio. Assumig that the productio fuctio uses the form of costat elasticity of substitutio (CES) of the elemet, the productio fuctio is as equatio () after itroducig the variable of public expediture. y f ( k, g, g, g ) [ k g g ] () / 2 Where α ad β i are the partitio coefficiets, 0 < α <, 0 < β i < ad meets α + i= β i =, ζ, ζis substitutio parameter. Govermet implemets balaced budget ad adjusts its expediture by reveue, i.e., govermet expediture is 86

3 equal to tax reveue ad there is o debt. Govermet reveue maily comes from tax reveue collected by a fixed tax rate τ. The total govermet expediture g is distributed to items accordig to differet proportios, g i meas the total amout of expediture of item i, ad g i eters ito productio fuctio to have a impact o ecoomic growth. Equatio (2) is the mathematical expressio of the balaced budget implemeted by govermet. g y (2) Meawhile, we itroduce the variable of public expediture structure i, i.e. the proportio of each public expediture item g i i total public expediture, ad the we have 0 < i <. The total public expediture is distributed to items accordig to the proportios. Govermet implemets balaced budget ad collects tax by a fixed tax rate τ. Combiig equatio (2), a idetical equatio depictig public expediture structure ad total public expediture, tax rate ad output ca be obtaied, as is show i equatio (3): g g Where gi i g i y (3) i i Substitutig (3) ito (), we ca get the productio fuctio icludig the share of public expediture. The we itroduce the variable of public expediture structure ito productio fuctio, as is show i equatio (4). Moreover, we also assume that govermet expediture will ot ifluece the preferece of represetative cosumers, or eve the utility they obtai from commodity cosumptio. i i i y [ ak g ] (4) Families provide labor ad capital to eterprises. Their cosumptio is decided based o the objective of lifetime utility maximizatio ad thereby, the capital provided to eterprises is also decided. They pay taxes to govermet accordig to fixed tax rates ad the cosumers expediture is costraied by their icome. Equatio (5) shows the preset value of the lifetime utility fuctio of represetative cosumers ad the budget costraits o cosumptio, where is the discout rate of utility ad is the fixed tax rate. t U u() c e dt (5) 0 st.. k ( ) y c Ad istataeous utility fuctio as i equatio (6) is adopted. We assume that cosumers have costat relative risk aversio tedecy σ. c uc () (6) To solve the pursuit of realizig lifetime utility maximizatio by represetative families is to solve the maximizatio of social welfare, i.e. to solve equatio (7). c t maxu e dt (7) 0 s. t. k ( ) y c Firstly, we build the Hamilto fuctio as is show i equatio (8): c t H e ( )( k g ii ) ] c i (8) Secodly, maximize Hamilto fuctio by first-order coditio, i.e., make the partial derivative of H(c, λ) to c as 0. We ca get: d c dt c (9) 87

4 Thirdly, based o the equatio of motio ofλ, solve the differetial equatio of λ ad obtaiλ. i i i H g ( )[ ( ) ] (0) k k The substitutig the obtaiedλ, or directly, λobtaied based o the equatio of motio, ito equatio (9), we ca get equatio (). ( ) i i i g ( )[ ( ) ] c k c Equatio () is the Euler equatio of represetative families lifetime utility maximizatio ad a deformatio of the first-order coditio of Hamilto fuctio, describig the growth rate of cosumptio. It is a equatio of motio o cosumptio, showig the rule that cosumptio chages alog with time. Besides, we assume τ as the fixed tax rate, ad the get the costat g/y ad hece the costat g/k, the followig ca be obtaied based o equatios (2), (3) ad (4): () g k i i i y [( ) / ] (2) k Substitutig (2) ito (), we ca get the expressio (3) o steady-state cosumptio growth rate which excludes k as expressed by η: ( ) / ii i (3) Based o equatio (3), we make derivatio ofηad ca get the relatioship betwee the share of item i of public expediture i total expediture ad the steady-state growth rate, as is show i equatio (4): ( ) ( ) ( ) ( ) i i j j ( )( )( ) [ ] i [ ] ii i Accordig to equatio (4), we defie productive ad o-productive expeditures. Productive expediture refers to a item of expediture that the icrease of its proportio ca promote log-term growth rate, i.e. η j > 0. O the cotrary, o-productive expediture refers to a item of expediture that the icrease of its proportio caot promote log-term growth rate. Whe do we have η j > 0? Based o the value rage of each parameter, it ca be kow that for equatio (4), if ad oly if β i (+ζ) i βj j (+ζ) > 0 there is η j > 0 ad accordigly the coditio of productive expediture ca be obtaied, as is show i equatio (5): i j Where θ= +ζ is the elemet s elasticity of substitutio of productio fuctio. Whe (β i βj) θ is greater tha i j, improvig the proportio of item i i public expediture by reducig the proportio of item j i public expediture ca promote the icrease of log-term ecoomic growth rate util (β i βj) θ is equal to i j, It ca be see that (β i βj) θ beig equal to i j is a critical value, the ecoomic sigificace of (β i βj) θ beig equal to i j lies i that item i ad item j expediture have reached the optimal structure by this time. Therefore we call equatio (6) as the optimal structure formula for public expediture. i i i j (4) (5) j j (6) 88

5 I order to have a clearer view of the ecoomic sigificace behid the formula, we assumeζ=0. We kow whe the estimated value of ζ is 0 ad elemet s elasticity of substitutioθ is, the productio fuctio of CES degeerates ito Cobb-Douglas productio fuctio. The coditios to be met with by productive expediture become equatio (7). The formula of optimal structure of public expediture is equatio (8). i j i i j j (8) By model derivatio aalysis, we ca make some tetative coclusios about the relatioship betwee public expediture structure ad ecoomic growth i the situatio where total public expediture remais costat, which are specifically summarized as follows: The impact of public expediture structure o ecoomic growth rate depeds ot oly o the output elasticity of various expeditures β i, but also o the iitial shares of various expeditures i. The output elasticity of oe item of public expediture beig greater tha that of aother item caot guaratee that ecoomic growth will be brought by reducig other items of public expediture to icrease this item. Whe a item of public expediture has great output elasticity but its iitial share i total public expediture is oversized, it will ot promote ecoomic growth by reducig other expediture to icrease the proportio of this item, i.e., because of the oversized iitial share, a item of expediture which appears to be productive will become o-productive; there exists optimal ratio of public expediture i ecoomic system, the formula of which is (β i βj) θ = i j, ad β i βj = i j whe θ is. O this coditio, we caot promote ecoomic growth by reducig the proportio of oe item of expediture to icrease that of aother item. At this poit, we have exteded Shatayaa Devaraja,Viaya Swaroop ad Heg-fu Zuo s model of the impact of public expediture structure o ecoomic growth from oe icludig two compoets of expediture to a model icludig compoets. We have demostrated the prerequisites of promotig ecoomic growth by adjustig public expediture structure, o the coditio of ot alterig the total scale of public expediture. Compared with the model of two compoets, the model exteded to compoets has arrived at cosistet coclusios, i.e. the impact of public expediture structure o ecoomic growth ot oly depeds o the margial output elasticity of each item of expediture, but also o their iitial shares. 4. Empirical Test Our empirical research is the aalysis of the relatioship betwee public expediture structure ad ecoomic growth based o data from Chia. 4. Data ad Variables We divide public expediture ito four dimesios accordig to fuctioal structure, i.e. ecoomic costructio expediture, social expediture o culture ad educatio, defese expediture ad admiistrative expediture. Eco/Te, Social/Te, Def/Te ad Admi/Te mea respectively the proportios of ecoomic costructio expediture, social expediture o culture ad educatio, defese expediture ad admiistrative expediture i total public expediture. The scale of public expediture is represeted by the proportio of total public expediture i GDP (Te/GDP). The role of labor i ecoomic growth is represeted by the growth rate of workig populatio (GRPopu). Ecoomic growth is represeted by the growth rate of per capita GDP (GRPCGDP). Due to the altered statistical coverage of public expediture i 2007 by the Chiese Govermet, data after 2007 caot be compared with those before Cosequetly cosiderig the data availability ad cosistecy of statistical coverage, we choose the time series data from 978 to 2006, all of which are obtaied from Chia Statistical Yearbook Firstly, we coduct a ADF test o the time series data. The detailed test results are reported i Table. The ADF values of variables i the table are all below the 95% critical value, showig that the ull hypothesis is rejected at 5% sigificace level. All the time series are variables of itegrated of order zero, i.e. statioary time series. Therefore we ca directly adopt the origial variables to establish VAR model. i j (7) 89

6 Iteratioal Joural of Ecoomics ad Fiace Vol. 8, No. 3; 206 Table. ADF test results Variables (C, d, T) ADF Critical Value (99%) Critical Value (95%) Eco/Te (0,0,0) *** Social/Te (C,0,0) ** Def/Te (C,0,T) *** Admi/Te (C,0,T) ** Te/GDP (C,0,0) ** GRPopu (C,0,T) *** GRPCGDP (C,0,0) ** Note. I the followig text, all the *** represets % sigificace level; ** represets 5% sigificace level; *represets 0% sigificace level. 4.2 Regressio Aalysis: Aalysis Based o VAR Model We choose the lag order of the model accordig to LR test methods ad establish model VAR (). The model has passed the joit sigificace test of coefficiets of all orders, ad the residual is white oise. Moreover, this VAR system is stable. As i Figure Roots of the Compaio Matrix, all the eigevalues of the model is withi the uit root Figure. Roots of the compaio matrix The estimate the causality betwee public expediture structure ad chages of ecoomic growth rate based o the Grager Causality Test. As i Table 2, i the relatioship betwee public expediture structure ad ecoomic growth, there exists a uidirectioal causality betwee the growth rate of per capita GDP ad the proportios of ecoomic costructio expediture, social expediture o culture ad educatio, ad admiistrative expediture. I other words, the chages of the growth rate of per capita GDP is caused by the chages of the proportios of ecoomic costructio expediture, social expediture o culture ad educatio, admiistrative expediture, ad ot the other way roud. Table 2. The Grager Causality test results Null Hypothesis F Statistic DOF P Value Eco/Te does ot Grager Cause GRPCGDP * Social/Te does ot Grager Cause GRPCGDP ** Admi/Te does ot Grager Cause GRPCGDP ** Te/GDP does ot Grager Cause GRPCGDP * GRPopu does ot Grager Cause GRPCGDP * All variables joit together does ot simultaeously Grager Cause GRPCGDP ** 90

7 I what follows, we will build impulse respose fuctios to aalyze the dyamic relatioship betwee public expediture structure ad ecoomic growth system as well as the dyamic impact o ecoomic growth by ecoomic costructio expediture, social expediture o culture ad educatio, defese expediture ad admiistrative expediture. Accordig to the impulse respose fuctio of per capita GDP to Eco/Te, we have obtaied the dyamic time trajectory of the chages i per capita GDP triggered by oe stadard deviatio shock i Eco/Te. As i Figure 2, the impulse respose curve of Eco/Te to GRPCGDP has a sigificat valley. Whe the shock i Eco/Te occurs, GRPCGDP shows a obvious egative respose ad drops to the bottom i the secod stage. The the egative shock begis to weake. Viewig from cumulative respose as i table3, whe the shock i Eco/Te occurs, GRPCGDP has a cumulative ad cotiuous egative respose ad drops to the bottom i the fourth stage. Eco/Te, GRPCGDP Year 95% CI impulse respose fuctio (irf) Graphs by impulse variable, ad respose variable Figure 2. The graphs of impulse respose fuctio of GRPCGDP to Eco/Te As i Figure 3, the impulse respose curve of Social/Te to GRPCGDP has a sigificat crest. Whe the shock i Social/Te occurs, GRPCGDP shows a obvious positive respose ad reaches the top i the first stage. The the positive shock begis to weake. Viewig from cumulative respose as i table3, whe the shock i Social/Te occurs, GRPCGDP has a cumulative ad cotiuous positive respose ad reaches the top i the seveth stage. 4 Socail/Te, GRPCGDP Year 95% CI impulse respose fuctio (irf) Graphs by impulse variable, ad respose variable Figure 3. The graphs of impulse respose fuctio of GRPCGDP to Social/Te 9

8 As i Figure 4, the impulse respose curve of GRPCGDP to Admi/Te has a sigificat valley. Whe the shock i Admi/Te occurs, GRPCGDP shows a obvious egative respose ad reaches the top i the secod stage. The the egative shock begis to weake. Viewig from cumulative respose as i table3, whe the shock i Admi/Te occurs, GRPCGDP has a cumulative ad cotiuous egative respose ad reaches the top i the third stage. 2 Admi/Te, GRPCGDP Year 95% CI impulse respose fuctio (irf) Graphs by impulse variable, ad respose variable Figure 4. The graphs of impulse respose fuctio of GRPCGDP to Admi/Te As i Figure 5, the impulse respose curve of Def/Te to GRPCGDP has a sigificat crest. Whe the shock i Def/Te occurs, GRPCGDP shows a obvious positive respose ad reaches the top i the first stage. The the positive shock begis to weake. Viewig from cumulative respose, whe the shock i Def/Te occurs, GRPCGDP has a cumulative ad cotiuous positive respose ad reaches the top i the eighth stage. 2 Def/Te GRPCGDP Year 95% CI impulse respose fuctio (irf) Graphs by impulse variable, ad respose variable Figure 5. The graphs of impulse respose fuctio of GRPCGDP to Def/Te Table 3 is a summary of the impulse respose values of public expediture structure to GRPCGDP. Based o VAR model, we draw the followig mai coclusios: Eco/Te has a cumulative egative impact o ecoomic growth; Social/Te has a cumulative positive impact o ecoomic growth; Admi/Te has a cumulative egative impact o ecoomic growth; Def/Te has a cumulative positive impact o ecoomic growth; there exists a sigificat uidirectioal causality betwee ecoomic growth ad Eco/Te, Social/Te ad Admi/Te, their chages are the reasos for chages i ecoomic growth; there is o sigificat causality betwee ecoomic growth ad Def/Te, to some extet Def/Te is a exogeous variable of the ecoomic growth. 92

9 Table 3. Impulse respose values of public expediture structure to GRPCGDP Ecoomic Costructio Expediture Social Expediture o Culture ad Educatio Defese Expediture Admiistrative Expediture Curret Stage Cumulative Curret Stage Cumulative Curret Stage Cumulative Curret Stage Cumulative Note. First colum meas time itervals, which is measured by year. 4.3 Robust Test I order to retest the relatioship betwee public expediture structure ad ecoomic growth, we adopt the geeral ecoometric model ad establish a regressio equatio as i equatio (9). GRPCGDP a GRPopu ( Te / GDP ) ( G / TE ) ( t, t) 2 3 (9) k t t The explaied variable GRPCGDP (t+, t+) i equatio (9) is the movig average of GRPCGDP which moves forward to stages. The reasos for choosig the movig average which moves forward to stages are as follows: (a) the effect of public expediture items o ecoomic growth has a certai time lag ad average by movig forward ca mitigate the impact of short-term fluctuatios; (b) to solve the edogeeity ad reverse causality of public expediture structure. For example, if there is a reverse relatioship betwee social expediture o culture ad educatio ad the curret ecoomic growth, it does ot mea social expediture o culture ad educatio has a egative impact o ecoomic growth. It is probably because of the relatively low ecoomic growth rate, the govermet icreases social expediture o culture ad educatio i the curret stage with a aim to promote ecoomic growth. Therefore we thik that the public expediture structure of t stage has a impact o the movig average from stage t+ to t+. (G TE) t is the vector of public expediture structure, which icludes Eco/Te, Social/Te, Def/Te ad Admi/Te. As a cotrolled variable, Te/GDP is the proportio of total public expediture i GDP, GRPopu is the growth rate of workig populatio ad reflects the effect of chages i workig populatio o GRPCGDP. k Table 4. OLS aalysis of the relatioship betwee public expediture structure ad ecoomic growth Eq.(.) Eq.(.2) Eco/Te * (-.90) (-.4) Social/Te ** ** (2.2) (2.33) Def/Te ** *** (2.49) (3.0) Admi/Te (-.8) (-0.27) Te/GDP ** *** (2.28) (2.80) GRPopu ** ** (2.78) (2.79) Costat (-0.05) (-0.6) R-Squared Adj R-Squared F value 6.6*** 7.69*** Note. t-statistics i paretheses. 93

10 As i Table 4, colum (.) to colum (.2) reflect respectively the regressio results of the movig average of public expediture structure ad GRPCGDP which move forward by 5 stages ad 6 stages i Chia. To be specific: Eco/Te has a sigificat egative effect o ecoomic growth. For each icrease of Eco/Te by percetage poit, GRPCGDP drops by 0.22 percetage poit. Social/Te has a sigificat positive effect o ecoomic growth. For each icrease of Social/Te by percetage poit, GRPCGDP icreases by 0.59 percetage poit. Admi/Te has a egative but ot sigificat effect o log-term ecoomic growth i Chia. Def/Te has a sigificat positive effect o ecoomic growth i Chia. No matter by VAR model or by classic sigle equatio ecoometric model, we have all obtaied the same relatioship betwee ecoomic growth ad Eco/Te, Social/Te ad Admi/Te, i.e., i the situatio of a costat total scale of public expediture, Eco/Te has a egative effect o ecoomic growth; Social/Te has a positive effect o ecoomic growth. This result is cotrary to the results obtaied by Barro, but cosistet with the structure obtaied by Shatayaa Devaraja, Viaya Swaroop ad Heg-fu Zou with aalysis of data from 43 developig coutries. By empirical test, we also draw the coclusio that Admi/Te has a egative effect o ecoomic growth ad Def/Te has a positive effect. 5. Explaatios Usually people ted to thik that oe of the reasos for the rapid ecoomic growth i Chia over the past three decades is the large-scale ecoomic costructio expediture. However the results of empirical test show that Eco/Te has a egative correlatio with ecoomic growth ad Social/Te has a positive correlatio with ecoomic growth. If we look back to the theoretical model, we will fid that it is ot surprisig to have obtaied such results. Because Eco/Te is too high i the public expediture structure i Chia, it becomes o-productive. O the cotrary, Social/Te is too low i the public expediture structure i Chia, it becomes productive. Takig Chia ad OECD coutries as examples, the average Eco/Te of Chia is 44.2% while the Eco/Te of OECD coutries mostly keeps stable betwee 0% ad 5%. Cotrary to Eco/Te, the Social/Te of OECD coutries have all passed 50% ad settled at aroud 60%. Takig the Uite States as a example, its Social/Te stays at aroud 55% for a log time. The Social/Te of welfare states such as Demark ad the Netherlads reaches 70%. Ad the Social/Te of Chia is oly 23.5%. Besides, the followig are also the reasos for the sigificat egative impact of Eco/Te o ecoomic growth. Firstly, viewig from the practical situatio i Chia, the low efficiecy of ecoomic costructio expediture is commo. What always go together with the expasio of ecoomic costructio expediture are the blid ivestmet, repeated costructios ad ret-seekig corruptios of some local govermets. The low efficiecy or eve iefficiecy of ecoomic costructio expediture has restricted its positive effect. Secodly, ecoomic costructio expediture as govermet ivestmet has Crowdig-out Effect o private ivestmet. I the relatively short ecoomic recessio, govermet ivestmet does ot have Crowdig -out Effect o private ivestmet; istead it eve has Crowdig I Effect. But i the log ru, the Crowdig-out Effect of govermet ivestmet o private ivestmet becomes sigificat. The reform ad opeig-up of Chia from 978 started with the chage from govermet-led plaed ecoomy to govermet-led market ecoomy. O the oe had, govermet-led market ecoomy has played a positive role i gatherig stregths; oe the other had, i the process of resource allocatio, the right boudaries of the govermet are too broad. Govermets at various levels have udertake excessive ad direct ecoomic developmet fuctios, which has a egative impact o private productio. Meawhile, too much ecoomic costructio expediture leads to the risk accumulatio of local govermet debts, brigig ustable factors to the operatio of macro ecoomy. The positive correlatio betwee social expediture o culture ad educatio ad ecoomic growth is also because that social expediture o culture ad educatio ca have positive impact o the labor ad techology. It ca promote the accumulatio of huma capital ad progress of sciece ad techology, ad hece have a positive impact o log-term ecoomic growth. The reasos for the egative impact of Admi/Te lie i the followig: Firstly, there are umerous admiistrative istitutios with large umber of staff i Chia; secodly, the usage efficiecy of admiistrative resource is ot high ad there is waste; thirdly, the operatio efficiecy of admiistrative istitutios is ot high. Admiistrative expediture is, ultimately, o-productive expediture. As a item of complete cosumptio expediture, it does ot produce material wealth directly, ad crowds out the iput of public expediture i public service area ad productive areas. 6. Coclusios ad Suggestios The theoretical model established i this paper shows that the impact of public expediture structure o ecoomic growth rate depeds ot oly o the output elasticity of various items of expediture, but also o the iitial shares of them. The output elasticity of oe item of public expediture beig greater tha that of the other 94

11 public expediture caot guaratee that icreasig this expediture by reducig other items of expediture will brig about ecoomic growth. Whe oe item of expediture has big output elasticity but its iitial share i total public expediture is oversized, ecoomic growth will ot be promoted by reducig other expediture to icrease the proportio of this expediture. The research results have importat policy implicatios for the Chiese Govermet i its future adjustmet of public expediture structure ad determiatio of the focus of public expediture. Firstly, Eco/Te should be reduced ad the problem of fiacial offside be solved. The iput directio of fuds should be optimized ad ecoomic costructio expediture be more directed to ifrastructure costructio, creatig good eviromet for ecoomic developmet. Ecoomic costructio expediture should withdraw from geeral competitive areas ad productio ad circulatio processes, ad play more of the fuctio of public service. The evaluatio ad motivatio targets of govermet officials should be chaged ad the ivestmet impulsio of local govermets be restraied. Secodly, Social/Te should be icreased ad the problem of fiacial vacacy be solved. Public educatioal expediture should be icreased ad the public ature of educatioal expediture be highlighted. The iput of public expediture i scietific researches should be ehaced, thus promotig the ecoomic developmet by scietific ad techological iovatios. The iput of public expediture i healthcare should be icreased so as to ease the tesio i medical resources. The level of social welfare expediture should be improved ad social welfare system be stregtheed. Thirdly, Admi/Te should be cotrolled ad the problem of redudacy be solved. The boudaries of govermet fuctios should be made clear ad offside be reduced. Istitutioal reform should be promoted ad the redudacy be cut. The operatio efficiecy of admiistrative expeses should be improved ad the admiistrative cost be reduced, so as to provide a good eviromet for ecoomic ad social developmet. Fourthly, the supervisio ad admiistratio of public expediture should be ehaced ad the efficiecy of fuds usage be improved. Attetio should be paid to the admiistratio of public expediture. The admiistratio system of public expediture which is stadard, highly efficiet ad soud should be established. The system of ope fiace should be promoted ad perfected, ad the trasparecy of public expediture should be cotiuously improved. The mechaisms of public expediture i terms of supervisio, evaluatio ad public decisio makig should be improved ad the supervisio of fiacial fuds be ehaced. Fifthly, the adjustmet directio of public expediture structure beig reformed from ecoomic-costructio fiace to public fiace should be adhered to. Opiios should be chaged ad the approach of ecoomic-costructio fiace should be trasformed to public fiace ad fiace of people s livelihood. Takig the satisfactio of social public eeds as the goal, the boudaries of govermet fuctios ad duties should be reasoably defied. The decisive role of market i resource allocatio should be played ad market rules, market prices ad market competitio be take as the mai adjustmet methods of micro-level resource allocatio. Refereces Arrow, K. J., & Kurz, M. (970). Optimal Growth with Irreversible Ivestmet i a Ramsey Model. Ecoometric, 38(2), Barro, R. J. (98). Output Effects of Govermet Purchases. Joural of Political Ecoomy, 89(6), Barro, R. J. (990). Govermet Spedig i a Simple Model of Edogeeous Growth. Joural of Political Ecoomy, 98(5), S03-S25. Blakeau, W. F., Simpso, N. B., & Tomljaovich, M. (2007). Public Educatio Expeditures, Taxatio, ad Growth: Likig Data to Theory. The America Ecoomic Review, 97(2), Che, B. L. (2006). Ecoomic Growth with a Optimal Public Spedig Compositio. Oxford Ecoomic Papers, 58(), Fei-yue, G., & Feg-zhi, X. (202). The Empirical Research o Chia s Govermet Expediture Structure ad Ecoomic Growth. Curret Ecoomic Iformatio, 9, MacDoald, L. (2008). The Impact of Govermet Structure o Local Public Expeditures. Public Choice, 36(3/4), Ramirez, M. D. (997). Review of Ecoomic Policy ad Stabilizatio i Lati America. Souther Ecoomic Joural, 64(), Saz, I. (20). What Do OECD Coutries Cut First Whe Faced with Fiscal Adjustmets. Souther Ecoomic Joural, 77(3),

12 Saz, I., & Velázquez, F. J. (2004). The Evolutio ad Covergece of the Govermet Expediture Compositio i the OECD Coutries. Public Choice, 9(/2), Shag-zhi, Z. (202). The Empirical Aalysis o the Impact of Fiscal Expediture Structure Distort o Ecoomic Growth. Review of Ecoomics ad Maagemet, 7, Shatayaa, D., Viaya, S., & Heg-fu, Z. (996). The Compositio of Public Expediture ad Ecoomic Growth. Joural of Moetary Ecoomics, 37, Woodford, M. (20). Simple Aalytics of the Govermet Expediture Multiplier. America Ecoomic Joural: Macroecoomics, 3(), Copyrights Copyright for this article is retaied by the author(s), with first publicatio rights grated to the joural. This is a ope-access article distributed uder the terms ad coditios of the Creative Commos Attributio licese ( 96